Investment / Trading 101 – Introduction to trading

This is the first article in series for beginners interested in stock, commodity and forex trading. In this article we will learn following concepts.

  1. What is trading.
  2. Basic rules of successful trading.
  3. Key ingredients of successful trading.
  4. Understating Financial Market.
  5. Understating Forex Market.
  6. Understanding Equity Market.
  7. Understanding Commodities Market.
  8. Derivatives Market.

You have to learn before you can earn.

What is trading?

In financial markets, trading is an exchange of goods between seller and buyer, where buyer receives the goods by compensating the seller. The compensation is normally in form of cash or currency and goods may also refer to currency, stock, shares or commodities. We can re-write the above definition as following.

Trading is to put your money to work to achieve your goals.

Golden rules of trading.

  • Never rely on luck and chances.
  • Plan, research and understand your investment, it will increase the chances of success.
  • Learn, what and when to trade.

Ingredients of successful trading

In this section we will explore what are the key elements of successful trading system.

Method

Market entry(buying) and exit (selling) decisions with the help of tools like.

Technical Analysis

Technical analysis is about determining the direction of an asset on the basis of it’s price.

Fundamental Analysis

Selecting an asset by comparing it with other assets.

Market Rumors

Market reports, rumors and trading signals.

Gut Feeling

Your own feeling about expected raise in currency X against currency Y.

Money Management

Money management is about controlling your market exposure. In other words money management is about amount used in a trade.

  • Specific amount of money used in a trade.
  • Specific amount of money that you can risk in each trade.
  • Stop-Loss Order.

Psychology

Correct mental approach to control trader’s fear and greed is essential to successful trading.

What is Financial Market

Financial markets are the places where trading from different places and by different people took place, there are two types of financial market, regulated centralized and over the counter market.

Regulated centralized markets

Trading in regulated markets run through centralized exchange, examples of such exchanges are.

  • NYSE (New York Stock Exchange)
  • KSE (Karachi Stock Exchange)
  • LSE (London Stock Exchange)

Over the counter market

Over the counter market is composed of a network of dealers who link buyers with sellers.

Financial Markets by category

Financial markets are normally categorized as following.

Forex Market

Forex market is used for trading of different currencies. You can buy and sell one currency against another to make profit. Average volume of daily trade in forex market is around 5 trillion US dollars, making it the biggest financial trading market of the world.

Commodities Market

Trading of commodities like sugar, gold, other precious metals, grains and oil etc took place in Commodities market.

Stock Market

Also known as equity market, stock market is used for trading of shares of different companies like Microsoft, Google and Facebook.

Derivatives Market

Trading of valuable financial contracts is made in Derivatives market.

This article is part of a series on Beginner’s guide to online stock, forex and commodity trading.

You like this article, have any questions or suggestions please let us know in the comments section.

Thanks and Happy Learning!

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Shoket Mahmood Ahmed

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